For the week ended 12/28, the VIX-trading portfolio turned slightly positive against the S&P 500. The portfolio finished the week up 1.8% versus a 1.9% loss on the market. The portfolio finished the week 30 basis points (BPS) ahead the market.
The gain on the week was reversed in today's trading following a break-through of sorts on the fiscal cliff impasse. For the year-end, the portfolio finished down 2% versus a 1.4% gain on the S&P 500 over the same period.
The weighted-average standardized VIX continues to rise even with today's 20% decline in the risk gauge. I calculate the standardized VIX at a level of 0.11, which is between the definitive buy and sell thresholds of -1.5 and +1, respectively. As such, the model reverts to the alternative measure using the daily standardized VIX. The daily standardized VIX is presently 0.98, and suggests poor future performance. In fact, historical periods when the weighted average standardized VIX is in the grey zone and daily standardized VIX is above 0.9 is typically followed by very poor market performance. The following tables shows the average the 6-month average and median performance of market on any day since 2000 as compared to future performance after the VIX criteria described above is seen.
Of course, past performance is no indication of future results. However, combine this with today's price/volume action (noting the volume was not strong enough in my opinion to mark a reversal, note to follow), and I think you can start to build a case for building downside risks.
The gain on the week was reversed in today's trading following a break-through of sorts on the fiscal cliff impasse. For the year-end, the portfolio finished down 2% versus a 1.4% gain on the S&P 500 over the same period.
The weighted-average standardized VIX continues to rise even with today's 20% decline in the risk gauge. I calculate the standardized VIX at a level of 0.11, which is between the definitive buy and sell thresholds of -1.5 and +1, respectively. As such, the model reverts to the alternative measure using the daily standardized VIX. The daily standardized VIX is presently 0.98, and suggests poor future performance. In fact, historical periods when the weighted average standardized VIX is in the grey zone and daily standardized VIX is above 0.9 is typically followed by very poor market performance. The following tables shows the average the 6-month average and median performance of market on any day since 2000 as compared to future performance after the VIX criteria described above is seen.
| BnH | VIX Crit | |
| Average | 0.83% | -8.38% |
| Median | 2.58% | -9.11% |
Of course, past performance is no indication of future results. However, combine this with today's price/volume action (noting the volume was not strong enough in my opinion to mark a reversal, note to follow), and I think you can start to build a case for building downside risks.
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